Daily Nugget: Gold Price Spikes To 3-Week High

The gold price spiked by over 2% yesterday, to a three-week high, following the release of the two-week delayed non-farm payroll data. The US dollar index suffered as a result of the data.

Only 148,000 new jobs were added in September, this number was far below the expected 180,000. The unemployment rate fell to 7.2% but according to HSBC economist Karen Ward it is closer to 9% if workers who aren’t actively searching but still want a job are included.

The unemployment figures are closely watched by markets as they are used by the FOMC as indicators of the health of the economy and when to taper QE. The number suggests that we are sometime away from tapering, but other numbers released this week put the event of tapering even further down the line. Standard & Poor’s said yesterday that the 16-day partial government shutdown is likely to have cost the economy $24 billion. Many now expect tapering to be delayed until Q1 2014.

Now that we’ve got the unemployment data out of the way market participants’ attention will be on next week’s FOMC meeting yet it is unlikely to be faced with similar levels of anticipation seen ahead of recent meetings. Not only does data suggest that tapering will not go ahead in October, but we are also rapidly approaching the end of Bernanke’s tenure. The Fed is unlikely to want to start unravelling the big easy money plan just prior to a new chief coming on board.

Gold investment not to be ignored

ETF outflows have slowed this week. Holdings climbed by 0.8% yesterday to 878.32, the first increase in nearly a month. ETF holdings have fallen 2.4% this month and 28.5% this year (the same percentage fall in the gold price incidentally). Whilst many point towards this as proof that gold demand is faltering we look at countries such as India where premiums continue to hit new records.

This week premiums have so far reached $120 an ounce over the London price, some industry insiders believes this will surge to $150 to $200 an ounce due to the ongoing shortage. Whilst there is clearly an official shortage of gold supply (purchases of gold and silver fell to $800 million last month compared to $4.6 billion in September 2012) there is little doubt that consumers are getting their gold by other, unofficial, means.

China gold demand faltering?

House prices are rising rapidly in China prompting fears that the central bank will respond with inflation fighting measures and see them rein in monetary policy. Bloomberg have begun to point to ‘slowing demand’ in China and believe demand seems to wavering. Spreads in Shanghai have fallen to ‘about $8 an ounce this week from $25 an ounce last week.’ Gold on the SGE traded at $1,345.33/oz yesterday.

Koalas and gold prospecting

And finally, a bit of light news, it seems gold really does grow on trees. Researchers in Australia have found miniscule deposits of gold inside the leaves of eucalyptus trees. The trees which had been planted on a site once part of a major gold rush in the 1800s, are thought to have sucked up the gold particles through their roots, from about 30m below ground.